Employers can cut costs—and improve morale.
By Gary Miklosovic
Talk to any benefits manager about the company’s program, and the topic of employee wellness initiatives is sure to be high on the list of priorities. Employers across the country want to know if and how wellness programs can help manage healthcare costs.
The interest in the issue is understandable. According to a 2008 report from the U.S. Congressional Budget Office, healthcare spending nearly tripled from $666 billion in 1985 to $1.9 trillion in 2005. While our nation’s per capita GDP grew by 2.1 percent annually between 1965 and 2005, our per capita healthcare spending grew by about 4.9 percent annually during that time.
With healthcare reform passed, but the future uncertain regarding how to best maintain healthcare costs, employers and their employees are seeking ways to take the issue into their own hands. This has placed corporate wellness programs into the spotlight, since such initiatives give companies the ability to be active about managing costs while improving their employees’ quality of life.
By offering financial incentives for employees to improve their health, companies can use wellness initiatives to maintain or reduce healthcare costs while helping workers to take charge of their personal well-being. That means employers are in a powerful position to create positive change amid the American healthcare debate.
How Chronic Conditions Contribute to Higher Costs
The Kaiser Family Foundation reports that various factors are driving the increasing cost of U.S. healthcare—including our country’s steadily aging population, new medical technologies and prescriptions, rising administrative costs, and an increase in chronic diseases. While several of those factors can’t be managed by employers, chronic diseases are the main area in which companies can help employees maintain or reduce their healthcare costs.
The Kaiser foundation notes that chronic disease treatment accounts for about 75 percent of all healthcare spending. That’s a huge percentage. We’ll never eliminate chronic conditions entirely from our population, but the Centers for Disease Control and Prevention notes that many of these chronic conditions, including heart disease, high blood pressure and diabetes, can be managed if people work to reduce risk factors for these illnesses.
By helping employees assess their wellness and understand the risks they represent to their employer’s insurance pool, companies can encourage employees to improve their health and reduce their risk for developing chronic conditions. By asking employees to monitor and improve their risk factors in four key areas—cholesterol levels, body-mass index, blood pressure, and nicotine use—businesses can help employees modify behaviors that present a danger to their health and can decrease their employer’s healthcare costs. In turn, this provides employers with the ability to give financial rewards for people who maintain low health risks or work to become healthier.
By making employee wellness an essential piece of the corporate culture, employers can realize a reduction in the rate of healthcare spending. In fact, companies that excel with wellness programs can reach a point where their costs stay stagnant or even decrease over time.
Changing Role of Wellness Programs
Corporate wellness programs are not new, but the model has certainly changed in the last several years. Many companies used to treat wellness as an employee perk. Employers assumed that they were emphasizing wellness by offering free clinic screenings in their offices, or giving away prizes to employees who have their blood pressure checked during their lunch hour.
Meanwhile, employee participation wasn’t considered paramount to corporate wellness. Many companies considered their wellness programs to be successful if 30 percent of employees took part in their initiatives. Rarely did companies offer incentives that would encourage more employees to participate in such programs.
The problem with the old wellness model is it had a tendency to preach to the choir. Employees who are willing to attend a workplace yoga class, for example, are typically the same people who work to maintain their cholesterol and blood-pressure levels. Employees who engage in riskier health behaviors didn’t have an incentive to participate in past wellness programs, so their health conditions continued to contribute to rising healthcare costs.
Today’s new wellness programs recognize that excess health risks equal excess healthcare costs for employers, and wellness initiatives play a vital role in benefit design for companies. Dr. Dee Edington, director of the Health Management Research Center at the University of Michigan, says employer health programs can maintain or reduce healthcare costs when companies achieve 90 to 95 percent employee participation, with 75 to 85 percent of employees having two or fewer health risk factors. And that’s where financial incentives come into play.
Under HIPAA wellness rules, companies can offer employees a discount of up to 20 percent on their healthcare premiums for maintaining a low health-risk lifestyle. This includes such behaviors as reducing alcohol consumption, quitting smoking, and exercising regularly. In turn, companies can charge employees up to 20 percent more for their premiums for maintaining high health-risk behaviors that can increase the company’s overall bottom line for healthcare costs.
Programs that reward healthy lifestyle choices give workers the opportunity to put more money in their own wallets by remaining healthy or working to become healthier. While employees must volunteer to participate in wellness programs, the incentive model gives them a reason to take their health seriously.
Wellness programs have a tangible ability to maintain or reduce healthcare costs. According to a study by Edington, the average amount of healthcare spending for low health-risk workers ages 35 to 44 in 2001 was $1,523. Workers who did not have their health assessed under a wellness program spent $2,100 that same year, while employees who were deemed to have a high level of health risks spent $4,530.
It is common to hear from employers who worry that these types of wellness programs are too invasive, or that they may be perceived as politically incorrect for implementing such initiatives. However, more companies are realizing employees often are on-board with participating in a voluntary program that can maintain or improve their health while helping them save money.
This understanding has helped wellness programs to grow steadily across the United States. According to the U.S. Bureau of Labor Statistics (BLS), 28 percent of full-time private sector employees had access to such programs in 2008, compared to 19 percent in 1999. The BLS notes that wellness programs are an “important component of employer benefits packages” because they can help employees to improve their health while maintaining benefit costs.
How to Start on the Road to Wellness
As a first step, companies should talk with an expert about how to incorporate wellness initiatives into their benefit design while remaining compliant with HIPAA laws. By law, participation in wellness programs must be voluntary, although companies can implement up to a 20 percent reward or penalty based on an employee’s health risks or willingness to participate. With the newly passed healthcare reform bill, in 2014, the reward limit may be increased to 50 percent of the cost of coverage if deemed appropriate.
Additionally, companies must have an appeals process built into their wellness program, and it must be fully and clearly communicated to all employees. This includes listing appeals information on all communication materials related to the wellness program. The appeals process allows employees who are predisposed to certain health risks—such as those who can’t exercise because of physical limitations—to find alternative means for participating in the wellness program without being penalized for their conditions.
Some companies find that they would rather “walk before they run” when it comes to promoting employee wellness. Many times, companies will choose to only provide health assessments for the program’s first year—giving their employees a year to improve their risk factors before financial incentives are implemented.
No matter the method for promoting employee wellness, there is one factor that determines the success of such programs for any company—a corporate culture that supports and encourages employees to be healthy. Companies that have policies, procedures and values that support a healthier staff can help their employees to take wellness into their own hands.
It can be as simple as offering healthy foods in the company’s cafeteria and vending machines, or encouraging employees to use the stairs instead of the elevator for short trips. Some companies implement at-work weight-loss programs, host healthy cooking seminars, or offer health coaching from local nurses to give employees information that can help them stay healthy. By creating a team-spirit approach to wellness, companies often find that their employees are more than willing to take charge of their own health.
By creating change that starts at the top, companies can implement effective wellness programs that are worthwhile for themselves and their employees. Financial incentives may provide the initial impetus for starting down the road to wellness. But businesses that work to support health in their workforce show that they care about the people who work for them—and that is truly the mark of any great company.
Gary Miklosovic is benefits advisor of Michigan-based Group Associates, Inc., a proprietary benefit management solutions provider. In order to obtain additional information, please visit www.groupassociates.com.